Limitation periods - when does the clock start?

Roose v Duthie [2016] NZCA 600


The appellant (R) sought advice from an accountancy firm in relation to the sale of property between two entities she owned and controlled. The accountancy firm advised that the transaction would not attract tax liability, which influenced R to proceed with the sale.  This advice proved to be incorrect causing R to suffer loss. R then sued the accountancy firm for breach of contract and for negligence.

An issue arose as to whether the claim had been brought in time. The High Court held that the loss occurred on the date the unconditional agreement had been entered into (14 April 2008) and therefore R could not claim in tort or contract as the limitation period had run out.   R appealed the decision.

Issue 1: When was the loss suffered? Distinction between a “flawed transaction” and “no transaction”

In the Court of Appeal, a distinction was drawn between a “flawed transaction” case and a “no transaction” case.

A “flawed transaction” case is one where the transaction would have been entered into even if there had been no breach of duty (i.e. negligent and/or incorrect advice). In these  instances, loss is determined by comparing the plaintiff’s actual position to the position the plaintiff would have been in had there been no breach of duty.

A “no transaction” case is one where the transaction would not have gone ahead had there been no breach of duty.  In those cases, loss arises when the plaintiff’s financial position is “measurably worse” than it would have been had the transaction not been entered into. 

The Court of Appeal held that the cause of action accrued on the settlement date, being 2 May 2008.  If R proves at trial that this is a “no transaction” case, the settlement date will be the relevant date for limitation purposes as that was the date which triggered the tax liability and caused the loss suffered.  On that basis the Court of Appeal determined that the claim was brought within the 6 year limitation period. 

The Court did not accept the respondent’s argument that once the agreement had been entered into the tax implications became inevitable.  Nor did the Court accept that a decision by R not to proceed with the sale would amount to tax evasion.  The Court instead took the view that loss does not arise until the purchase is complete and the purchaser has parted with their money. 

 Issue 2: Postponement of limitation period for fraud

Under s 28 of the Limitation Act 1950, where the right of action is concealed by fraud the limitation period does not begin until the fraud is (or with reasonable diligence could have been) discovered.  The Court found that the fraudulent concealment of a cause of action need not coincide with the accrual of the cause of action.  Therefore s 28 can be applied to fraudulent concealment discovered later, thus postponing the start of the limitation period.

In the High Court R contended that the accountants must have realised they had made a mistake in the tax advice during the audit and that they had a fiduciary duty to disclose the mistake to her.  The High Court ruled this could only provide a new cause of action.  The Court of Appeal disagreed with the High Court on this point.  Instead the Court of Appeal held that the claim for breach of fiduciary duty was not only a new cause of action, but it could also provide the basis for postponing the start of the limitation period for both the contract and tort claims.  


Craig Langstone from Fee Langstone says limitation issues are never straight-forward as this case highlights.  The Court of Appeal appears to have adopted an approach to limitation that will please certain claimants whilst displeasing defendants and their liability insurers.  Of course quite when a “flawed transaction” case will become a “no transaction” case is likely to be fraught with difficulty.